Industry and Competitive Analysis

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Industry and Competitive Analysis
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Questions to Answer

• What are the dominant economic traits?
• What are the competitive forces at work?
• What are the drivers of change?
• Which companies are the strongest and the
  weakest?
• Who will make the next competitive move?
• What are the key factors of success?
• How attractive is the industry for profitability?

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Industrys Dominant Economic Traits

• Market size
• Geographic scope of competitive rivalry
• Market growth rate growth cycle
• Number size of rivals
• Number size of buyers

• Pace of product innovation
• Ease of entry and exit
• Pace of change of technology
• Degree of differentiation
• Capacity demand

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Industrys Dominant Economic Traits

• Economies of scale offer companies lower costs
  competitive advantage
• Available economies of scale
• Manufacturing
• Research Development
• Purchasing
• Transportation
• Advertising

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Industrys Dominant Economic Traits

• Need for high capacity utilization
• Whether there exists a strong learning and
  experience curve
• Prevalence of vertical integration
• Capital requirements
• Industry profitability above or below average?

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Porters 5 Competitive Forces

• Rivalry among competing sellers
• Firms with substitute products
• Potential entry of new competitors
• Leverage of suppliers
• Leverage of buyers

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Competitive Forces at Work Competitive Rivalry
Increases when

• Increase in the number of competitors
• Competitor size becomes more equal
• Slow growth in demand
• High proportion of cost is fixed
• Product is costly to hold in inventory

• Customer cost to switch is low
• Competitor(s) dissatisfied with market position
• Size of the payoff for strategic move
• Increase in exit costs
• Diversity of competitors
• Takeovers of weaker firms

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Competitive Forces at Work Substitute Products

• Place ceiling on prices and profits
• Customers compare
• Price
• Quality
• Service
• Performance features
• Other costs

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Competitive Forces at Work Substitute Products

• Cost of switching products
• Retraining
• Additional equipment
• Technical help
• Testing quality and reliability
• Severing old relationships
• Establishing new relationships

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Competitive Forces at Work Threat of New
Entrants Determined by

• Economies of scale
• Access to technology
• Learning curve
• Brand preference customer loyalty
• Capital requirements

• Cost disadvantage or access to suppliers
• Access to distribution channels
• Regulatory, licensing permit policies
• Tariffs restrictions

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Competitive Forces at Work Power of Suppliers
Determined by

• Size of the customer
• Number of suppliers
• Demand for products
• Availability of substitutes
• Standardization of commodity
• Economies of scale make or buy
• Quality

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Competitive Forces at Work Power of Buyers
Determined by

• Size of the customer
• Number of buyers
• Demand for products
• Cost of switching
• Buyer bargaining power is not equal
• Threat of vertical integration by buyer
• Discretion over when to purchase

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Drivers of Change

• Internet
• Globalization
• Long-term industry growth rate
• Who buys the product and how it is used
• Product innovation
• Technological change
• Marketing innovation

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Drivers of Change

• Entry or exit of major firms
• Diffusion of technology
• Changes in cost and efficiency
• Emerging buyer preferences
• Regulatory, social and political influences
• Reduction in uncertainty and risk
• Flattening of the world

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Key Success Factors

• Technology
• Manufacturing
• Distribution
• Marketing
• Skills
• Organizational capability
• Miscellaneous

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Strongest Weakest Companies

• Strategic Group Mapping
• Identify competitive characteristics
• Plot firms on a 2-variable map
• Assign firms to strategic groups
• Circle groups proportional to size

• Variables
• Not correlated
• Expose differences in rival strategies
• Need not be quantitative or continuous
• Multiple pairing may provide several maps

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Who Will Make the Next Move?

• Identify competitor strategies
• Which are strong which are weak
• Evaluate who will be the major players
• Predict competitors next moves
• Strategic changes
• Moves into new markets
• Acquisition- targets or movers

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Competitor StrategiesCompetitive Scope

• Local
• Regional
• National
• Multi-country
• Global

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Competitor StrategiesStrategic Intent

• Dominant leader
• Overtake the leader
• Among the top 5
• Among the top 10
• Move up a notch, or two
• Overtake a rival
• Maintain position
• Just survive

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Competitor Strategies Market Share Objective

• Aggressive expansion via
• Internal growth
• Acquisition
• Expansion via internal growth
• Expansion via acquisition
• Hold on to present share
• Give up share if necessary

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Competitor StrategiesCompetitive Position

• Getting stronger
• Well entrenched
• Stuck in the middle of the pack
• Seeking different market position
• Struggling, or losing ground
• Retrenching

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Competitor StrategiesStrategic Posture

• Mostly offensive
• Mostly defensive
• Combination of offense and defense
• Aggressive risk-taker
• Conservative follower

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Competitor StrategiesGeneric Competitive
Strategies

• Low-cost leadership
• Market niche
• High end
• Low end
• Geographic
• Special needs buyers
• Other

• Differentiation based on
• Quality
• Service
• Technological superiority
• Breadth of product line
• Image and reputation
• Value
• Other attributes

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Attractiveness of Industry

• Growth potential
• Impact of prevailing driving forces
• Potential entry or exit of major firms
• Stability of demand

• Trend of competitive forces
• Severity of problems confronting industry
• Future risk or uncertainty
• Potential for impact on profitability trend